Recode Studios Ltd Management Discussions

Industry Overview

Indian Beauty And Personal Care Industry: A Transformational Growth Opportunity

The Indian Beauty and Personal Care (BPC) industry is undergoing a significant transformation driven by evolving consumer preferences, increasing awareness, digital adoption and changing consumption patterns. It encompasses skincare, haircare, fragrances, colour cosmetics, personal hygiene, and emerging categories like clean beauty and cosmetics.

Beauty and personal care products have traditionally been associated with selective usage occasions. However, changing lifestyles and increasing consumer awareness have transformed the category into an everyday consumption segment.

The sector has evolved into one of the most influential and fast-growing industries globally, supported by rising disposable incomes, urbanization, health awareness, and digital-first consumption. The industry drives not only lifestyle trends but also global economic growth, employment, and innovation.

Post-pandemic, e-commerce, direct-to-consumer (D2C) models, and virtual try-on technologies redefined access and experience. As consumer priorities shift toward sustainability, inclusivity, and transparency, companies are adopting ethical sourcing, ecofriendly packaging, and cruelty-free testing. The industry increasingly emphasizes wellness and self-expression, moving beyond aesthetics to holistic beauty.

In India, the cosmetics industry is among the fastest-growing consumer sectors, transitioning from volume-driven to value- and innovation-led growth. It offers a diverse portfolio spanning skincare, haircare, colour cosmetics, fragrances, and hygiene products. India is also a major supplier of herbal, natural, and ayurvedic cosmetics globally, with over 5,000 domestic companies and several international players operating through JVs and subsidiaries.

Today, beauty consumption is increasingly influenced by:

• Personal grooming aspirations
• Social media influence
• Product innovation
• Accessibility through digital platforms
• Demand for affordable premium products

Indias young demographic profile, rising disposable income levels and increasing internet penetration have created favourable conditions for the expansion of the beauty category. The market is witnessing participation from traditional FMCG companies, global beauty brands as well as emerging digital-first brands, resulting in increased innovation and consumer choice.

Evolution of Beauty Consumption in India

From Brand-Led Consumption to Consumer-Led Discovery.

Historically, beauty product consumption in India was primarily driven by established brands with extensive offline distribution networks. Consumer choices were often influenced by brand familiarity, availability and traditional advertising. However, the category has evolved significantly over the last decade. The emergence of digital platforms has changed the consumer journey from a simple purchase transaction into a broader discovery and engagement experience.

The modern beauty consumer increasingly follows a journey of:

Content Discovery ? Product Education ? Consumer Reviews ? Trial ? Purchase ? Repeat Usage

Looking ahead, the industry is projected to grow at a Compounded Annual Growth Rate (CAGR) of 6.21%, reaching a market size of USD 27.75 CY billion by 2034. This growth trajectory reflects strong domestic demand, expanding export opportunities for herbal and ayurvedic formulations, rising adoption of innovative and cruelty-free products, and increasing participation of global brands in the Indian market.

The breakdown of the Cosmetics market highlights clear consumer preferences and evolving demand patterns. Skincare (39%) dominates as the largest category, reflecting consumers increasing focus on self-care, wellness, and long-term skin health. Rising awareness of sun protection, anti-aging solutions, and the use of natural and dermatologically tested products has positioned skincare as the strongest growth driver. Hair care (21%) ranks second, supported by consistent daily use and innovation in herbal, organic, and specialized products like anti-dandruff and colour protection.

Makeup (17%) retains its aspirational appeal, with growth coming from younger consumers, urban working populations, and the influence of social media and beauty influencers. Fragrances (13%), though smaller, are gaining popularity as perfumes and deodorants transition from luxury to lifestyle essentials, especially in emerging markets. Hygiene (10%), traditionally less prominent, has gained importance in the post-pandemic era with growing demand for sanitization and personal hygiene products. Overall, skincare and hair care form the backbone of the Cosmetics market, while makeup, fragrances, and hygiene add aspirational and lifestyle-driven growth layers.

Digital Transformation of the Beauty Industry

Online Platforms Expanding Consumer Access.

The growth of e-commerce has fundamentally changed the beauty retail landscape. Digital platforms have enabled beauty brands to:

A. Reach consumers beyond traditional retail markets
B. Build direct consumer relationships
C. Understand changing preferences faster
D. Launch products with greater agility
E. Create communities around their brands

The direct-to-consumer (D2C) model has allowed emerging beauty companies to reduce traditional barriers associated with distribution expansion. At the same time, leading beauty platforms have demonstrated that the long-term opportunity lies in building an integrated ecosystem combining online convenience with offline experience.

The Rise of Omnichannel Beauty Retail

Integrating Digital Convenience with Physical Experience

1. Product trials
2. Physical Experience
3. Personal Recommendations
4. Brand Interaction

As a result, the beauty industry is increasingly moving towards an omnichannel model.

The future of beauty retail is expected to be driven by integration between: Digital commerce, Physical retail, Consumer communities and Data-driven product development. Companies that successfully combine online reach with offline accessibility can create stronger consumer relationships and improve brand recall.

Recodes business model is aligned with this evolving industry structure through its combination of:

• Own digital platforms
• Marketplace presence
• COCO stores
• FOFO stores
• Institutional ecosystem
• Modern Trade
• Premium Kiosks

Premiumisation and Changing Consumer Preferences

Consumers Seeking Better Value and Experience.

Indian consumers are increasingly seeking products that offer a combination of quality, innovation, convenience and affordability. The beauty category has witnessed a shift towards affordable premiumisation, where consumers are willing to experiment with new products and categories while seeking better value propositions. Growth opportunities are emerging across:

1. Makeup
2. Skincare
3. Body Care

4. Beauty Accessories

The expansion of beauty awareness beyond metropolitan cities is further increasing the addressable market for brands that can provide accessible products across price points.

Company Overview

Building an Accessible Beauty and Personal Care Brand

Recode Studios Limited is a beauty and personal care company operating in the beauty, cosmetics and personal care segment in India.

The Companys business primarily involves branding, procurement and distribution of beauty and personal care products under the "Recode" brand. Recode focuses on delivering everyday beauty solutions through a diversified portfolio of products catering to different consumer requirements.

The Company has built its presence by combining: Product development, Brand Building, Digital Engagement, Retail Expansion and Distribution Capabilities.

Over the years, Recode has evolved from a beauty-focused brand into an integrated BPC consumer platform with multiple channels of customer engagement, product offerings, sales and distribution models.

An Asset-Light Beauty Platform Focused On Brand Building And Distribution

Recode operates through an asset-light business model focused on branding, procurement and distribution. The Companys approach enables it to focus capital and resources towards areas that directly influence consumer engagement and growth, including product innovation, marketing, brand development and distribution expansion. The asset-light model provides several strategic advantages:

1. Operational Scalability
2. Faster Product Innovation
3. Lower Capital Intensity

FY26: Strengthening The Foundation For Recodes Next Phase of Growth

2025-26 marked an important milestone in Recode Studios Limiteds journey as the Company continued its transition from a growing beauty brand into a scalable beauty and personal care platform with an integrated omnichannel presence.

The year witnessed strong business momentum, supported by deeper market penetration, expansion across distribution channels, improvement in operational efficiency and strengthening of the Companys financial position. During FY26, Recode delivered significant growth across key financial parameters:

Particulars	FY26	FY25	YoY Growth %
Revenue from Operations	?7,994.99 Lakhs	?4,779.81 Lakhs	67.27%
EBITDA	?1,664.74 Lakhs	?627.11 Lakhs	165.46%
EBITDA Margin	20.9%	13.12%	+778 bps
Profit After Tax	?1,122.48 Lakhs	?311.18 Lakhs	260.72%
PAT Margin	14.03%	6.51%	+752 bps

The Companys performance during the year reflects the increasing acceptance of the Recode brand among consumers and the effectiveness of its integrated business model combining digital channels, retail expansion and institutional relationship. FY26 was also a year of strategic strengthening. The successful completion of the Companys listing process provided access to growth capital, enabling Recode to accelerate investments towards working capital, brand visibility, distribution expansion and future infrastructure development.

Key Financial Ratios

The ratios as per the latest amendment to Schedule III are as below:

Particulars	Numerator/Denominator	31st March 2026	31st March 2025	Change in %	Reason for change
(a) Current Ratio	Current Assets / Current Liabilities	2.26	1.74	30%	Due to increase in Receivables
(b) Debt-Equity Ratio	Total Debts / Shareholders Equity	0.31	0.87	-64%	Due to reduction in Total Borrowings and increase in Shareholders Equity
(c) Debt Service Coverage Ratio	Earning available for Debt Service	5.15	2.14	141%	Due to increase in profit available
(d) Return on Equity Ratio	Profit after Tax / Average Shareholders Equity	78.16%	43.42%	80%	Due to increase in profit
(e) Inventory turnover ratio	Cost of Goods Sold / Average Inventories	2	2.46	-19%	NA
(f) Trade receivables turnover ratio	Total Turnover / Average Trade Receivables	6.82	6.81	0%	NA
(g) Trade payables turnover ratio	Total Purchases / Average Trade Payable	7.29	4.54	61%	Due to increase in turnover
(h) Net capital turnover ratio	Total Turnover / Average Working Capital	6.08	4.04	51%	Due to increase in turnover
(i) Net profit ratio	Net Profit / Total Turnover	14.02%	6.51%	115%	Due to increase in turnover
(j) Return on Capital employed	EBIT / Capital Employed	59.98%	33.47%	79%	Due to increase in turnover
(k) Return on investment	Profit after Tax / Op. Shareholders Funds	128.68%	55.45%	132%	Due to increase in turnover

Note: The table on this page had some formatting issues in the source (merged cells, "Due to increase in profit available profit" etc.). The content above reflects the best possible reconstruction.

The Company continued to focus on building a strong consumer-centric beauty ecosystem through:

1. Expansion of retail presence through COCO, FOCO, Modern Trade, Premium Retail Kiosks format
2. Strengthening digital commerce capabilities
3. Increasing product availability across geographies
4. Expanding product categories, especially in premium and luxury sub category.
5. Building stronger consumer engagement through brand initiatives

Recodes long-term vision remains focused on creating a trusted beauty and personal care brand that combines accessibility, innovation and consumer understanding.

Strengthening Consumer Reach Through a Scalable Omnichannel Growth Strategy

FY26 represented a year of strong execution for Recode as the company continued to expand its presence across digital platforms, physical retail channels and institutional networks. The Companys growth strategy remained focused on creating a balanced ecosystem where consumers can discover, experience and purchase Recode products through multiple touchpoints.

During the year, Recode strengthened its presence through:

Digital commerce platforms
Own website and application
COCO and FOFO retail formats
B2B distribution channels
Beauty professional ecosystem

This integrated approach enabled the company to improve accessibility, enhance consumer engagement and expand its geographical reach.

Strengthening Offline Presence Through COCO and FOFO Expansion

Expanding Physical Touchpoints across Key Markets

While digital commerce has accelerated beauty adoption, physical retail continues to play an important role in beauty purchases due to the experiential nature of the category. Consumers often prefer physical touchpoints for product discovery, testing and trials, personal recommendations and brand experience.

Recode has adopted a hybrid retail expansion strategy through:

Company Owned, Company Operated (COCO)	Franchise Owned, Franchise Operated (FOFO)
COCO stores allow Recode to directly control:	FOFO stores enable faster market expansion with lower capital requirements.
? Customer experience	? Expand into new geographies
? Brand presentation	? Increase consumer accessibility
? Consumer feedback	? Build local market presence
? Retail execution

As of FY26, Recode operated 23 retail stores comprising of COCO and FOCO model. Going forward, the Company intends to continue expanding its retail footprint through premium retail kiosks and modern trade retail outlets.

Moving Towards A More Diversified National Presence

Recode continued to expand its geographical footprint during FY26. The Companys revenue contribution across regions was:

Region	FY26 Revenue Contribution
North Zone	32.85%
East Zone	27.18%
West Zone	23.13%
South Zone	10.47%
Central Zone	6.37%

Strategic Acquisition of Affaira Professionals Private Limited

Strengthening Recodes Presence in the Premium Beauty and Personal Care Segment

During FY26, Recode Studios Limited took an important strategic step towards strengthening its position in Indias evolving Beauty and Personal Care (BPC) industry through its investment in Affaira Professionals Private Limited ("Affaira"), an emerging premium beauty and cosmetics brand.

The acquisition aligns with Recodes long-term strategy of building a diversified beauty ecosystem by partnering with complementary brands that bring differentiated product offerings, premium positioning and additional growth opportunities.

The strategic rationale includes:

? Enhancing Product Portfolio and Category Depth
? Expanding into Premium and Aspirational Beauty Categories
? Strengthening Premium Beauty Positioning
? Creating Operational synergies across the beauty ecosystem

On 14 July 2026, Recode entered into a Share Purchase Agreement (SPA) with the existing shareholders/promoters of Affaira Professionals Private Limited to acquire up to 51% equity stake in the Company through a combination of secondary acquisition of equity shares and subscription to fresh equity shares. The transaction was structured in two phases, enabling a calibrated approach towards strategic integration and value creation.

The first phase of the transaction was successfully completed on 23 July 2026, pursuant to which Recode acquired a 33% equity stake in Aflairza through a combination of fresh equity subscription and secondary share acquisition. The aggregate investment for Phase I amounted to approximately 8.32 crore.

Upon completion of the subsequent phase, subject to achievement of agreed milestones and applicable conditions, Recode intends to increase its shareholding to 51%, thereby becoming the majority shareholder of Aflairza and further strengthening its strategic focus on the premium beauty segment.

About Aflairza Professional Private Limited

Aflairza Professionals Private Limited is engaged in the business of manufacturing, marketing and trading of beauty, cosmetics and personal care products. The Company was incorporated on 16 May 2026 pursuant to the conversion of M/s Aflairza Cosmetics, a partnership firm, into a private limited company.

While the private limited entity was recently incorporated, it succeeded the existing business operations of the partnership firm and continued the same line of business without interruption.

The predecessor entity, M/s Aflairza Cosmetics, recorded consistent revenue growth over the last three financial years:

Financial Year	Revenue
FY23-24	?4.44 crore
FY24-25	?7.77 crore
FY25-26	?8.22 crore

Recode has also strengthened governance oversight through representation on the Board of Aflairza. Ms. Palak Trehan has been appointed as the nominee director of Recode Studios Limited on the Board of Aflairza Professionals Private Limited.

Information Technology and Digital Infrastructure

Technology continues to reshape the beauty industry by enabling brands to better understand consumer preferences and improve decision-making. The Company intends to continue leveraging technology to improve operational efficiency and create better consumer experiences.

Recodes digital platforms provide opportunities to strengthen consumer insights, product feedback, customer engagement and sales analytics.

Digital Growth and Direct Consumer Engagement

Strengthening Consumer Relationships Through Digital Platforms

Digital channels continue to remain a key growth driver for Recode. The Company has developed its online presence through: Its own website, Mobile Application and Leading marketplaces including Amazon, Flipkart, Myntra and Nykaa.

A significant part of Recodes online business is generated through its own digital platforms. More than 72% of online sales are generated through the Companys own website and application.

This direct-to-consumer approach provides strategic advantages including: Better understanding of consumer behaviour, Direct customer interaction, Ability to build consumer loyalty and Faster feedback on products and preferences.

The Company continues to leverage digital platforms not only as sales channels but also as important tools for brand discovery and consumer engagement.

Human Resources

People remain an important pillar for a consumer brand operating in a dynamic and competitive market. The Company continues to strengthen its organisational capabilities to support increasing scale and operational complexity.

As Recode expands its presence across channels and geographies, developing a capable and agile team remains central to its long-term strategy. Recodes growth requires capabilities across multiple areas including: Brand Management, Product Development, Digital Marketing, Retail Operations, Supply Chain Management and Customer Engagement.

Risk Management

During the financial year under review, the Company has identified and evaluates elements of business risk. Consequently, a Business Risk Management framework is in place. The risk management framework defines the risk management approach of the Company and includes periodic review of such risks and also documentation, mitigating controls and reporting mechanism of such risks. The framework has different risk models which help in identifying risks trend, exposure and potential impact analysis at a Company level as also separately for business.

Internal control systems and their adequacy

The Company has an adequate system of internal control to ensure that the resources are used efficiently and effectively so that:

• assets are safeguarded and protected against loss from unauthorized use or disposition.
• all significant transactions are authorized, recorded and reported correctly.
• financial and other data are reliable for preparing financial information.
• other data are appropriate for maintaining accountability of assets.

The internal control is supplemented by an extensive internal audits programme, review by management along with documented policies, guidelines and procedures.

Growth Outlook — Flywheel Effect: Building A Scalable Beauty Platform

Recode Studios is building a self-reinforcing growth flywheel driven by brand expansion, omnichannel presence, premiumisation, and operational capabilities. The Companys integrated growth strategy focuses on strengthening every part of the value chain — from consumer acquisition and distribution expansion to supply chain efficiency and profitability enhancement.

Expanding Retail Footprint:

The Company continues to strengthen its offline presence through modern trade partnerships, including entry into Daburs NewU stores, with plans to add 15-20 additional NewU stores in FY27. Recode is also expanding its presence across leading retail chains such as Shoppers Stop, Spencers and other modern trade platforms.

Strengthening Store Network:

With 23 regular stores and 7 kiosks already operational, the Company continues to enhance consumer accessibility while building a stronger physical retail ecosystem.

Premiumisation-Led Growth:

The Companys investment in the premium beauty segment through its 51% stake acquisition in Aflairza strengthens its portfolio and enables participation in higher-value beauty categories.

Digital-First Consumer Engagement:

Recodes strong D2C foundation, with 80% of online sales generated through its own channels, enables deeper consumer relationships, stronger brand recall, and data-driven customer engagement.

Building Stronger Distribution Infrastructure:

To support future scale, the Company is developing its Ludhiana warehouse and distribution network, with operations expected to commence from April 2027. This initiative will improve fulfilment efficiency, inventory management, and geographic reach.

Expanding Quick Commerce Presence:

Recognising the growing demand for convenience-led beauty purchases, the Company has initiated expansion of its dark store network to strengthen its quick commerce capabilities and enable faster customer deliveries.

Deepening Strategic Partnerships:

The Company has further strengthened its relationship with Nykaa by becoming available on Nykaa Superstore, enhancing its presence across premium beauty marketplaces and improving consumer accessibility.

Driving Sustainable Growth And Margin Expansion:

With a higher premium product mix, efficient distribution network, and effective marketing initiatives, Recode aims to improve average order value (AOV), enhance margins, and create a more profitable business model.

Through this growth flywheel, Recode Studios aims to create a larger, stronger, and more profitable beauty platform, with a targeted growth ambition of 50% in FY27 supported by an integrated omnichannel strategy.

Cautionary Statement

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may constitute forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand and supply, price conditions in domestic markets, changes in government regulations and tax laws, and other incidental factors. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.